The extension of deadlines concerning insolvency duties, measures to support business solvency in response to the Covid-19 pandemic

Royal Decree-Law 5/2021, on extraordinary measures to support business solvency in response to the COVID-19 pandemic, introduces a set of provisions aimed at providing “the appropriate framework to address the process of analysis and strengthening of balance sheets and financial restructuring, during 2021“.

This regulation was settled to provide additional protection to the business network in order to avoid the impact on the economy of the dizzying reduction in income to which a large number of companies and freelance employees have been forced to succumb.

These include the so-called insolvency moratorium, which aims to support companies whose solvency has been affected by the pandemic, with the main objective being the maintenance of activity and preservation of the maximum number of employees.

Measures are established from a double point of view:

FOR THE DEBTOR: a generic extension of deadlines is provided for certain obligations of companies or self-employed persons whose insolvency may have been affected during this period of health crisis, so that, if they are viable, they can benefit from this moratorium in order to continue their activity, stabilise their financial situation and thus avoid winding up.

  1. Extension of the deadline for filing for bankruptcy proceedings

Creditors who find themselves in a situation of insolvency that is decisive for their obligation to apply for insolvency proceedings will see the deadline for doing so extended to 31 December 2021 inclusive.

Important: it is expressly provided that the statutory period of two months for submitting the application to the competent court starts to run from 31st December 2021.

  1. Request for renegotiation of settlement or out-of-court settlement agreement

A creditor who has reached an out-of-court settlement or an agreement with its creditors and needs to renegotiate it or propose a new one adapted to the current situation will have until 31st December 2021 to do so, as a general rule, and if no default action has been initiated by the creditors, in which case the special rules for default actions set out below apply. 

  1. Extension of deadline to apply for liquidation due to impossibility of complying with the settlement agreement

The insolvent party that becomes aware of its inability to comply with an approved agreement or to meet the obligations contracted after the approval of the agreement, will have until 31st December 2021 to notify the Commercial Court of this fact and request the opening of the liquidation phase.

Important: in order to benefit from this extension, the debtor must have filed a proposal to amend the agreement that has been accepted for processing before 31st December 2021.

FOR THE CREDITOR: The moratorium extends the deadlines within which creditors’ actions will be admitted for processing or in process procedurally. These measures not only benefit the debtor – as they provide a lifeline so that if the debtor is in an insolvency crisis it can rebuild its financial statements and meet the obligations assumed instead of going into liquidation – but to a certain extent they also increase creditors’ expectations, which in a winding up situation would be practically nil.

  1. Extension of the time limit for the suspension of the processing of necessary bankruptcy filings

Until 31 December 2021, applications for the necessary bankruptcy filed from 14th March 2020 are suspended and will therefore not be processed by the Courts.

  1. Processing of actions for non-compliance with settlement or out-of-court payment agreements
SUBMISSION

PERIOD

PASSED TO THE CREDITOR ADMITTED FOR PROCESSING SUSPENDED UNTIL DEBTOR PRIORITY

TO PROPOSE MODIFICATION / NEW

between 31/10/20 and 31/01/21 YES NO 30/04/2021 Yes until 30/04/21
between 31/01/21 and 13/03/21
admitted for processing
YES YES 31/12/2021 Yes until 31/12/21
between 31/01/21 and 30/09/21 YES NO 31/12/2021 Yes until 31/12/21
  1. Processing of actions for non-compliance with refinancing agreements
SUBMISSION

PERIOD

PASSED TO THE CREDITOR ADMITTED FOR PROCESSING SUSPENDED UNTIL DEBTOR PRIORITY

TO PROPOSE MODIFICATION / NEW

between 31/10/20 and 31/01/21

YES

NO 30/04/2021 Yes until 30/04/21
between 31/01/21 and 13/03/21
admitted for processing

YES

YES 31/12/2021 Yes until 31/12/21
entre 31/01/21 y 30/09/21

YES

NO 31/12/2021 Yes until 31/12/21

It should be noted that during these suspension or non-admission periods, the debtor may notify the Commercial Court of his intention to renegotiate the refinancing agreement – even if not more than one year has elapsed since any previous approval – in which case he will have an additional period of three months to amend the agreement already in force or even a new one.

If an agreement with the creditors is not reached within that period, the stay of proceedings on the application for default shall be lifted.

In conclusion, the measures adopted by Royal Decree-Law 5/2021 will make it possible to implement additional negotiation strategies of great interest to companies interested in maintaining the activity, with several feasibility scenarios that can be analysed.

In each case, consideration should be given to the most effective alternative for safeguarding the financial situation in order to maintain the business in operation with a guarantee of long-term continuity in meeting its obligations.

The information contained in this note should not in itself be considered as specific advice on the matter under discussion, but only as a first approach to the subject matter, and it is therefore advisable that the recipients of this note obtain professional advice on their specific case before taking specific measures or actions.

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